The yield curve generally slopes upward because
A)longer maturity bonds typically pay higher interest rates than shorter maturity bonds.
B)longer maturity bonds typically pay lower interest rates than shorter maturity bonds.
C)shorter maturity bonds have more default risk.
D)longer maturity bonds are not taxable.

Question

Quizplus · Accepted Answer

The yield curve generally slopes upward because longer maturity bonds typically pay higher interest rates than shorter maturity bonds. This is known as a normal yield curve and reflects the fact that investors demand higher compensation for the additional risk of holding longer-term bonds. This can be due to factors such as inflation expectations, term premiums, and market conditions.

The Yield Curve Generally Slopes Upward Because